Energy Markets React to Supply Chain Disruptions and Geopolitical Uncertainty

Energy prices demonstrated upward momentum on Thursday as markets grapple with compounding supply-side challenges. WTI crude for January delivery [CLF26] advanced +0.21 points (+0.38%), while January RBOB gasoline prices [RBF26] climbed +0.0070 (+0.41%). The modest gains reflect conflicting forces: geopolitical risks tightening supply availability, an improving stock market lifting demand expectations, offset partially by currency headwinds and bearish outlooks on global crude inventories.

Geopolitical Flashpoints Reshape Energy Supply Calculations

The energy market’s support structure rests heavily on escalating international tensions affecting two major oil-producing regions. The Trump administration announced late Tuesday a comprehensive blockade targeting Venezuelan oil tanker traffic—a policy shift that directly constrains crude availability. Simultaneously, Washington has escalated pressure on Russian energy infrastructure through discussions of enhanced sanctions targeting the shadow tanker fleet that circumvents existing restrictions on Moscow’s petroleum exports.

Ukraine’s ongoing military operations have proven particularly disruptive to regional energy production. Over the past quarter, drone and missile strikes have damaged approximately 28 Russian refining facilities, simultaneously eroding Moscow’s processing capacity and constraining its global export footprint. These attacks, combined with intensified sanctions on Russian petroleum companies and transport infrastructure, have meaningfully curtailed Moscow’s ability to supply crude into international markets.

Supply Dynamics Create Structural Market Support

OPEC+ provided additional support to price floors when it reaffirmed commitment on November 30 to halt production expansion throughout Q1 2026. This decision reflected the cartel’s November assessment: while members would increase output by 137,000 barrels per day in December, the anticipated global oil surplus necessitated a production pause in the coming quarter.

The International Energy Agency’s mid-October analysis projected a substantial global crude surplus reaching 4.0 million bpd during 2026, explaining OPEC+'s cautious stance. The organization retains 1.2 million bpd of previously announced production cuts still awaiting restoration—a deliberate constraint on available supplies.

November represented a modest production contraction for OPEC members, with crude output declining 10,000 bpd to 29.09 million bpd. The cartel simultaneously revised its assessments of Q3 market conditions, pivoting from projected deficit scenarios to anticipated surplus positions as US output outpaced forecasts and member-state production ramped upward.

US Production Expansion and Inventory Positioning

American crude production trajectories support the global surplus narrative. The Energy Information Administration elevated its 2025 US production estimate to 13.59 million bpd from the previous month’s 13.53 million bpd projection. Weekly production for the period ending December 12 reached 13.843 million bpd—marginally below the November 7 record of 13.862 million bpd.

Active US oil drilling operations demonstrate modest recovery momentum. Baker Hughes data from December 12 showed 414 rigs operating, a single-rig increase from the previous week and notably above November 28’s 4-year low of 407 active rigs. However, the broader two-and-a-half-year trend reveals significant contraction: rig counts have declined precipitously from December 2022’s 5.5-year peak of 627 units.

Inventory conditions present a mixed picture. As of December 12, EIA data indicated US crude oil storage approximately 4.0% below the 5-year seasonal average, while gasoline inventories sat 0.4% below seasonal norms and distillate supplies trailed by 5.7%. These moderately tight inventory positions provide marginal price support despite the anticipated supply surplus.

Countervailing Pressures Limit Upside Potential

The crude rally encountered resistance from two significant headwinds. Dollar strength reduces the attractiveness of US dollar-denominated commodities for international buyers, while expectations for abundant global crude supplies through 2026 cap sustained price appreciation. Tuesday’s sharp market decline—bringing crude and RBOB gasoline prices to 4.75-year lows—demonstrated the ongoing concern regarding demand sufficiency amid anticipated oversupply conditions.